Market Trends

Insurance and Energy Industries are Embracing the Use of Drones

When I first read articles about the use of drones in fleet operations, I used to roll my eyes. But, no longer. After talking with many different fleet managers, I’ve come to the conclusion that drones in commercial applications will have a major impact in a variety of industries. At most companies, drone operations will fall outside the domain of fleet, at least initially. The utility and cost-effectiveness of drones may buttress a business case that fewer vehicles may be needed due to the efficacy of drones.

Commercial drone flights are banned in the U.S. However, the Federal Aviation Administration (FAA) has awarded exemptions to allow test flights while the agency formulates formal regulations. Under this program, the FAA has provided 5,500 exemptions to use commercial drones in 42 different applications in the U.S. As FAA restrictions are further eased, my prediction is that drones will proliferate into mainstream business practices, with the insurance and energy industries being in the vanguard.

Use of Drones in the Insurance Industry

Almost all insurance companies, such as Travelers, Hartford, State Farm, Erie Insurance, AIG, USAA, American Family, etc., have received exemptions from the FAA to fly commercial drones. The property insurance industry is testing drones for use in underwriting by helping to determine property values and conditions before issuing policies, as well as for claims after an incident has occurred. One application that the insurance industry is testing is the use of drones for claims inspections, in particular, assessing roof damage. In many cases, drones will make it unnecessary for appraisers to perform the hazardous task of climbing on roofs, thereby reducing Workers’ Comp claims.

A drone can survey roof damage in real-time and relay data to a claims agent’s phone, tablet computer, or any device with a WiFi connection. Using a drone to inspect a building after a loss is not only safer, but also more efficient. Initial tests show that by using a drone, adjusters and underwriters can obtain the information they need approximately 10 times faster than before. In addition, drones can be operated at a much lower per-hour cost than manned inspection vehicles and offer the ability to collect data on a pre-programmed repeatable track, providing consistency in the inspection data. However, there are limitations. Drones are not allowed to exceed an altitude of 400 feet by the FAA.

Since the use of drone technology is in its infancy, it is still uncertain the impact drones will have on insurance company vehicle fleets. One argument is there will be less need for larger ½-ton trucks or SUVs to haul two-story ladders (28-feet) and may allow downsizing vehicles currently used to carry one-story ladders. But the counter-argument is that drones will require larger vehicles than those currently in use. This could play into current dynamics of some field people advocating for SUVs. Drones will require substantial cargo space, which could be remedied by selecting SUVs. Also, most drones are battery powered. If drones are used during an entire work day or for more substantial periods, such as during disasters, it may require spec’ing vehicles with larger alternators to charge drones or additional cargo space to haul a power generator.

Energy Industry a Leader in Use of Drones

Energy companies are reconsidering the ways they inspect equipment and infrastructure by exploring cost-effective alternatives. The energy industry uses drones equipped with thermal imaging and gas “sniffer” technology to monitor pipelines, fuel storage tanks, and onshore oil platforms to provide rapid response to oil spills and gas leaks. ConocoPhillips conducted the first drone flight in commercial airspace in Alaska in 2013. The cost-effectiveness of drones is appealing to the energy industry, especially at a time of low oil prices and constrained budgets. Drones offer a faster and more efficient way of inspecting energy infrastructure in remote locations versus using 4x4 trucks and manned aircraft.

Commercial Drone Revenues to Hit $82B in 2026

Besides the insurance and energy sectors, many other companies also recognize the benefits of drones and are looking to use them in a wide-range of commercial application. One example is the railroad company BNSF, which is testing drones to monitor and inspect rail tracks and bridges. Other drone applications being investigated include remote reporting capabilities by news organizations, surveying farm crops and monitoring livestock, maritime applications, transporting medical supplies to remote areas, and the much publicized experiments by UPS, Google, and Amazon in using drones for the “final mile” delivery of parcels.

Also, a new industry is emerging to provide third-party drone services to individuals and businesses on an outsourced basis. Perhaps, we may see this as a future service offering from today’s fleet management companies? The commercial drone market promises to grow very rapidly. U.S. Secretary of Transportation Anthony Foxx forecasts the commercial drone industry will generate $82 billion revenue by 2026 and create 100,000 new jobs.

Relaxing FAA Rules Inhibiting Drone Use

FAA rules require a commercial drone operator be accompanied by a spotter when flying outdoors. Anyone within 500 feet of a drone flight must be notified, which includes pedestrians and motorists who might be in the coverage zone. New FAA rules have eased strict regulations on who could fly drones, as well as the manpower needed to operate them. The proposed changes would allow for solo operation of a drone. Also, as of Aug. 29, 2016, commercial users will be able to operate a drone after only taking a written exam on drone flight safety.

One major, and ongoing, issue is that there are no national standard regulations governing drone usage. When a business operates a drone in a new location, the company must check state and local restrictions since regulations vary by jurisdiction.